Foreign Relations of the United States Diplomatic Papers, 1940, The Far East, Volume IV

711.94/1546: Telegram

The Secretary of State to the Ambassador in Japan (Grew)

Washington, July 4, 1940—3 p.m.

243. Your 512, June 29, 1 a.m.,¹ and previous.

1. Subject to such comment as you may care to offer, the Department suggests that in continuation of the series of conversations which you have been having with the Minister for Foreign Affairs you offer in response to his oral statements of June 12 (your 448, June 12, 11 p.m.²) and the oral statements embodied in your 510, June 28, 11 p.m.,³ and 512, June 29, 1 a.m., respectively, oral comment as follows:

The Department of State has been giving careful thought to the memoranda of the Minister for Foreign Affairs in regard to American-Japanese relations and is gratified at the manifestly attentive consideration which the Minister for Foreign Affairs has given to the views of this Government as embodied in your oral statement communicated to the Minister on June 19.⁴

As indicated in the Department’s telegram no. 172, May 30, 2 p.m., we consider that the situation presented by the present European war, whatever the outcome, is a matter of grave concern. This is especially true in respect to those nations whose prosperity to an important degree is dependent upon foreign trade. It is clear from what Mr. Arita has said that the Japanese Government, as does this Government, attaches great importance to foreign trade. In examining Japan’s official trade statistics we note that in 1939 of Japan’s total exports 64.9 percent by value went to the countries of Asia and 21.5 percent to the countries of the American continent, leaving a balance of 13.6 percent for the rest of the world. Of Japan’s total imports 40.5 percent by value came from the countries of Asia and 42.8 percent from the countries of the American continent, leaving a balance of 16.7 percent for the rest of the world. These figures indicate clearly Japan’s interest in there being averted as far as practicable developments arising out of the hostilities in Europe which would cause disturbed conditions to extend to the countries of Asia and America and impair the flow of trade between Japan and the countries in the continents mentioned.

Of the total exports of the United States in 1939 the countries of Asia took 17.6 percent by value and the countries of the American continent 35.8 percent. Of our total imports we derived 30.2 percent by value from the countries of Asia and 38.7 percent from the countries of the American continent. The United States is therefore also greatly interested in the free flow of trade between it and the countries of both Asia and America. The parallel between Japanese and American interests in trade may be extended still further. A substantial portion of the trade between Asiatic and American countries consists of the trade between Japan and the United States. This trade is in large measure complementary in character. Under any system of economic autarchy there could not develop such a healthy and profitable trade relationship as that which has existed between Japan and the United States. It is also significant that both in Japan and in the United States respect for private property rights constitutes the foundation of the social and economic system.

A further circumstance bearing upon economic and commercial relationships between on the one hand the United States and on the other hand countries of the American continent and countries of Asia is that certain of those countries need capital for progressive development and the United States has available funds for investment abroad. It goes without saying, however, that capital is naturally not venturesome and finds outlets only in regions where conditions of security, stability, order and progress obtain.

In his memorandum of June 28 (your 510) the Minister for Foreign Affairs stated that it is imperative that Japan, because of its need for overseas markets and sources of supply, should seek “to preserve certain special trade outlets with countries and regions although she upholds as a fundamental basis for trade the principle of non-discrimination”. It would appear to us that the interests of a country such as Japan whose economy is based upon foreign trade would best be served by the application to the widest extent of the principle of equality of commercial opportunity and the maximum liberalization of the principle of non-discrimination in trade. An attempt by one country to exempt particular areas from the applicability of these principles would inevitably lead other countries in their turn to make claims for the exemption of other areas, with the result that there would be created a series of regional economic blocs based upon preferences and discriminations which could not fail to be detrimental to the interests of the major trading countries. On the other hand in a mutual system of non-discrimination Japan would not have its trade limited to one regional economic bloc but would enjoy both the advantages of supplying to a wide range of markets those goods which Japan can most efficiently produce and the correlative benefit of obtaining its needed materials from the least expensive sources. More than under any other international trade system, Japan would, under a system of non-discrimination, be able, in the regions in which it has expressed a special interest, to reap benefit from the competitive advantage which it enjoys by virtue of its position of geographic proximity to those regions.

With regard to the question of Japan’s policy toward the Netherlands East Indies to which reference is made in caption C. of paragraph 4 of the Minister’s oral statement of June 12, this Government has noted that according to a statement of the Japanese Foreign Office the Japanese Government is negotiating with the Netherlands and the Netherland East Indies Government on the subject of trade and enterprise and the entry of Japanese into the Netherlands East Indies. We have noted especially that notwithstanding the reported declaration of the Netherlands and the Netherland East Indies Government that they would not take any measure that would prevent the export to Japan of commodities deemed essential by Japan, the Japanese Government has asked the Netherland and the Netherland East Indies Government to take appropriate measures to “definitely assure the export of the desired quantities of required goods.” As the Japanese Government is aware, the products of the Netherlands East Indies enter prominently into the economy of many countries. The United States maintains important commercial relations with the Netherlands East Indies and there exists there a substantial American enterprise. According to the statistics of this Government for 1937, the latest year for which complete statistics are available, of the total foreign trade of the Netherlands East Indies 15.8 percent by value was with the United States as compared with 11.6 percent with Japan. Consequently, the Government of the United States has a substantial interest in the maintenance in the Netherlands East Indies, as well as elsewhere, of the principle and practice of equality of opportunity in trade and enterprise. This Government would therefore appreciate it if the Japanese Government would keep this Government informed of how these principles are being given application in the negotiations which the Japanese Government is conducting with the authorities of the Netherlands East Indies.

With reference to the Foreign Minister’s oral statement of June 28 (forwarded in your 512, June 29, 1 a.m.), in which the Foreign Minister addresses himself to the proposal of this Government for an exchange of notes on the subject of the maintenance of the status quo in the possessions and territories in the Pacific area of the belligerent European powers, the Foreign Minister indicates his belief that for the United States and Japan, which countries are not belligerents, to conclude any sort of an agreement on this subject would give rise to very delicate relationships for Japan, which has taken a position of non-involvement. It would appear, however, to this Government that the proposed exchange of notes would contribute materially to making secure Japan’s position of non-involvement in the European war and indeed the proposal of this Government was motivated by a desire to minimize in the region of the Pacific the adverse effects of the European hostilities. Moreover, it is the conviction of this Government that in periods of disturbed international equilibrium, the reaffirmation by governments of fundamental principles and policies as contemplated in the proposed exchange of notes operates in the direction of cultivating stability. Considerations of the importance of Japan’s trade relations with the Pacific region, as indicated by trade statistics, would seem to us to be an impelling reason for the giving by the Japanese Government of favorable consideration to the suggestion of the American Government.

The Foreign Minister states that he cannot consider the American proposal dissociated from conversations which have been held hitherto and suggests that, in order to make further progress in the conversations concerning this proposal, he be informed of this Government’s views with regard to the statements contained in his oral statement of June 12.

In paragraph 4 of the Foreign Minister’s memorandum of June 12 (your 448, June 12, 11 p.m.) there are enumerated three problems as worthy of particular study in connection with the question of effecting and [an?] improvement in American-Japanese relations. These problems relate to Japan’s present and future economic policy and to recent manifestations of certain aspects of Japan’s policies in relation to China, the Netherlands East Indies and Thailand. We, for our part, also regard these problems as important and believe that clarification of the questions posed in regard to them is essential to consideration of the suggestion contained in caption A of the last paragraph of the Foreign Minister’s oral statement, under reference, namely, the question of the concluding of a modus vivendi between the United States and Japan as a temporary measure. It would therefore he helpful to have as concrete indication as possible in regard to the aims and intentions of the Japanese Government with regard to the points (a) and (b), namely, “Is Japan’s economic policy to be to adopt an entirely closed economy”, et cetera, and “Once the hostilities in China have been terminated, actually to what extent will there remain measures of an exclusive nature in the economic field”. Naturally, the sooner there develop manifestations of implementation of the Japanese Government’s declarations that existing restrictions are temporary in character the more pleased will be the Government of the United States.

With reference to caption B of the final paragraph of the Foreign Minister’s memorandum of June 12, which raises the question of aid to Chiang Kai-shek, the Government of the United States, entirely apart from the fact that it recognizes the National Government now at Chungking as the Government of China, desires in complete candor to express the opinion that there would appear to be no prospect of ensuring a united government of China except through recognition of a leadership which enjoys the genuine support of the great majority of the Chinese people.

With reference to the suggestions contained in caption C of the Foreign Minister’s memorandum of June 12, we have noted the expressed desire that Japan and the United States act in concert to contribute to the peace of the world. We have also noted the ideal expressed by the Foreign Minister in his radio address of June 29 that Japan constitute a stabilizing force in Eastern Asia. The Government of the United States would of course view with sympathy policies and procedures which by peaceful means and with due regard for the rights and interests of all powers and peoples concerned give order, justice, and stability in any region of the world. Such policies and procedures leave each state in any area fully independent and free to seek with other countries throughout the world normal commercial and other healthy relations. Such policies and procedures are antithetical to policies and procedures directed toward securing by force political or economic domination for one country in any area.

2. The approach and argumentation suggested in this telegram revolve primarily around the idea that from an economic and commercial point of view Japan’s best interests lie along the lines of the economic policies in which this Government believes. The fact that in this telegram there is emphasized this particular factor should not be taken to mean that the Department would not approve of your using in your discussion the argumentation on other factors contained in previous telegrams. It is our view that at this point clarification by the Japanese Government of its attitude toward future commercial policy would, if evidencing compatibility with our views, tend to contribute to more rapid progress in your conversations. It is obvious that once outstanding differences on broad and fundamental questions have been settled, details would tend to fall into place and possibly in some instances need for discussion of them would be obviated.

3. In connection with the comment upon the possibility of there being reached an understanding with the Japanese Government in reference to maintenance of the status quo in regard to the possessions and territories in the Pacific area of belligerent European powers, I desire that you keep specially in mind paragraph 3 of my telegram 215, June 22, noon.⁵

4. Additional comment for general background purposes and possible use in your discretion is offered as follows: It seems to us that Japan must soon make decisions on two fundamental questions. The first question is whether Japan will pursue a policy and a course based upon an endeavor to exploit and secure for her own uses the resources and trade of territories which are at present impoverished, where standards of living are low, and where productive capacity is limited, or whether Japan will choose to follow a course based upon cooperation with other similarly minded countries toward utilizing all available resources of capital, technical skills and progressive economic leadership for the purpose of building up their own economy and the economy of undeveloped and more primitive areas. Viewed in the light of history, pursuit of the first mentioned course can bring about no substantial and permanent benefit to any country. Whatever benefits may accrue would be of only a temporary nature. Pursuit of the second mentioned course would increase many fold purchasing power of peoples, would raise standards of living, and would bring about advantages of a lasting character.

The second fundamental choice which it seems to us Japan must make is related to the first and is whether Japan will choose to affiliate itself with countries committed to the doctrine of acquisition by force of territory. Decision on Japan’s part to follow such a course would not in our opinion result in permanent advantage to Japan. By following such a policy it might be possible of course to denude occupied territories of existing forms of natural and other wealth, but once this wealth has thus been gathered there would be no substantial basis on which to build for future economic well-being and progress. Moreover, pursuit of such a course would tend to rule out prospect of cooperating with other nations in a broad program of progressive, economic and social development wherein there would be enlisted the capital resources and technical skills of the various countries concerned.

5. In the various telegrams which we have sent you in regard to your current conversations with the Minister for Foreign Affairs we have endeavored to indicate to you in broad outline the procedure and the substance of the presentation which in our judgment has seemed best designed to further the end in view. The carrying out of each instruction has been subject to your discretion and possible comment I wish to emphasize my desire to have at every stage of the conversations the benefit of any views which you may wish to offer in regard to the Department’s instructions and the benefit of your judgment in regard to rejoinders that may in your opinion best be made to views and arguments presented from time to time by the Minister for Foreign Affairs.

Hull

1. Not printed, but for the statement of the Japanese Minister for Foreign Affairs, see Foreign Relations, Japan, 1931–1941, vol. ii, p. 91.
2. Ibid., p. 79.
3. Telegram not printed; for statement by the Japanese Minister for Foreign Affairs, June 28, see ibid., p. 90.
4. Ibid., p. 83.
5. Foreign Relations, Japan, 1931–1941, vol. ii, p. 86.